“You may have been thinking that the highest rate of income tax payable was 45%, at which point the rate of National Insurance is 2%, giving an effective tax rate of 47%.
But did you know you could be subject to an effective combined rate of income tax and national insurance of 62% if you earn over £100,000?
The 62% tax trap refers to the income band falling between £100,000 and £125,140 on which the employed or self-employed will effectively experience an income tax rate of 60% alongside national insurance contributions of 2%.
This is because for every £2 you earn over £100,000 per annum, you lose £1 worth of your £12,570 tax-free personal allowance.
Your tax rate only reduces to the additional rate of 45% after the entirety of your personal allowance for that year has been eroded, i.e. on income above £125,140.”
But did you know you could be subject to an effective combined rate of income tax and national insurance of 62% if you earn over £100,000?
The 62% tax trap refers to the income band falling between £100,000 and £125,140 on which the employed or self-employed will effectively experience an income tax rate of 60% alongside national insurance contributions of 2%.
This is because for every £2 you earn over £100,000 per annum, you lose £1 worth of your £12,570 tax-free personal allowance. Your tax rate only reduces to the additional rate of 45% after the entirety of your personal allowance for that year has been eroded, i.e. on income above £125,140.”
Source: https://www.theprivateoffice.com/insights/have-you-fallen-vi....